For the most part, valuation on these early-stage companies, is part
perception, part reality. The value depends on how much you place
faith in the business plan, the technology and the management.
There’s not much by way of revenue, and nothing in the earnings
department, for early-stage investing. That’s why it is potentially
so lucrative.

But perception must give way to reality – and, actually, the public
companies are happy for that. Hungry for it. Generally, they’ve been
dumbfounded at the lack of investor enthusiasm through a tough
summer – because the companies have been building out their business
plans as they told investors they would.

For Solazyme and Amyris, there was the expectation of new partners
and new production capacity. Done. For Codexis, the expectation of a
deal with Raizen in Brazil to expand into bagasse-based renewable
chemicals., Done. For Gevo, it was time to sign up new capacity and
work towards conversion of their first commercial-scale plant to
isobutanol production. Done. For KiOR, it has been a time of
building capacity – underway.

Pavel Molchanov, alt energy analyst for Raymond James, commented:
“Following this rating change, KiOR becomes our third Market
Perform-rated stock in the alternative fuels space. The key
difference is that our rating on our other two Market Performs –
Codexis and Rentech – reflects fundamental concerns about their
business models, as opposed to valuation. Our top pick in the
space – and, in fact, the only Strong Buy-rated stock in our
alternative energy coverage universe – remains Amyris. We have
Outperform ratings on Clean Energy Fuels, Gevo, and Solazyme.”

Fair? The stocks have generally been performing, throughout the
summer, poorly in comparison to the broad equities markets. The
space between current prices and analyst-based target prices is
reaching astonishing levels. Solazyme, a 46 percent discount to its
target price; Gevo, a 38 percent discount. Amyris, a 34 percent
discount.

Inflection points?

For Solazyme, their next major JV announcement,. For Amyris and
Gevo, start-up of their Sao Martinho JV and Luverne plants,
respectively. Rentech, completion of its Colorado-based PDU next
year. Codexis, its first major commercial arrangement outside of the
Shell universe, or clarification from Shell on its strategy and
timing.

The disappointments for ethanol in 2008, biodiesel in 2009-10, and
the performance of the public advanced biofuels stocks in 2011 has
created a potentially chilling effect for the seven stocks that wish
to move forward with their IPOs.

Grading the class of eight IPO hopefuls

The star students – the A’s.
With the eight new IPOs, sentiment has been running strongest
amongst observers for Genomatica and Elevance – the renewable
chemicals story is playing well, we hear. Liked by investors? Higher
product margins, less capital intensive path to scale.

A-minus. Ceres is considered
a special case, being such a long-term play and a very broad
investor base, should an IPO prove unattractive.

Incomplete. OriginOil
(OOIL.OB) is too new to the IPO group to have generated
substantial section.

Looking like a gentleman’s C.
Of the four, PetroAlgae is considered the long-shot, given the long
time the company has been in the IPO mix without pricing, and given
the large capital raise ($200 million) and somewhat complex
ownership structure.

The Solid B’s. Myriant,
Mascoma and Fulcrum are all – like most of these new IPOs –
financing events rather than liquidity events for investors. The
current owners are trying to get more cars on the freeway, not
heading for the exits.

Fulcrum is financing its waste-to-energy project in Nevada. Chief
appeal? A low-cost feedstock story, and a great emissions picture,.
What could be finer than converting garbage to fuels? Myriant is
financing a scale-up of its ambitions in succinct acid. Chief
appeal? Like Genomatica and Elevance, they are capitalizing on the
large, relatively high-margin markets. On the down-side, a number of
companies chasing succinct acid and the ongoing question of whether
any of these companies can produce product at parity with the fossil
fuel-based incumbents.

Mascoma – well, consolidated bioprocessing hard been a high-flying
cellulosic biuofuels technology for a long time. That’s its
challenge – like PetroAlgae, its been out there raising capital for
quite a while. What do we hear from investors. The scale-up
challenges are still generally not well understood by the market,
and the daunting capital intensive nature of the projects, has put a
question mark on the company’s ability to continue to scale. It’s a
very light question mark, given all the progress the company has
made, but enough to dull their momentum in an unenthused market.
Many observers thought that Valero’s $50 million investment
commitment would tip the scales for the company – but a more
dramatic downstream partnership announcement may be just the ticket
for the company to move forward.

The bottom line

So, thirteen companies – the lucky 13? Well, we doubt that all of
them will, in the very long-term, survive the coming consolidation
in biofuels. But if they haven’t quite yet fully locked in
first-mover advantage, they have their noses out in front of the
pack.

Others in the mix? Companies like INEOS Bio, Dupont Danisco
Cellulosic Ethanol and BP Biofuels with access to huge balance
sheets have to be considered among any real list of the potential
winners in biofuels. Plus hot technologies like LS9, Cobalt, Qteros,
Mendel, and Sapphire, to name just a few, that have remained on the
private side of the equation.